The Great Recession
and Distribution of
Income in California
Sarah Bohn
●
Eric Schiff
Justin sullivan/Getty imaGes
Summary
T
he effects of the Great Recession have been felt far and wide. According to official measures, the recession ran from December 2007 until June 2009. During that time, California
experienced record unemployment, a housing market bust, sizable budget shortfalls,
and downturns across nearly all major industries in the state. These problems have continued
well past the technical end of the recession.
California’s families have been hit hard by the Great Recession and its aftermath. Family
income has declined across the spectrum, with lower incomes seeing the steepest losses
(Table 1). The gap between upper- and lower-income families is now wider than ever. And the
number of families in the middle-income range is shrinking. Specifically, we find:
• Total income for the median family in California fell more than 5 percent between 2007 and
2009 (the official recession years) and an additional 6 percent between 2009 and 2010.
• At the lowest income level—the 10th percentile—family income fell more than 21 percent in total. At the 90th percentile, family income fell 5 percent.
• After adjusting for California’s higher cost of living, just less than half—47.9 percent—
of individuals were in families that could be considered middle income in 2010.
As these findings suggest, the Great Recession has brought us to new extremes. These
include record high measures of inequality, near-record lows in the proportion of middle-
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The Great Recession and Distribution of Income in California
Table 1. Family income fell in every income category between 2007 and 2010
Family income ($)
2007
2008
Percentage change
2009
2010
2007–2009
(official recession)
2007–2010
(actual peak to trough)
10th percentile
19,100
17,000
16,200
15,000
–15.2
–21.5
25th percentile
34,600
34,200
32,400
31,200
–6.4
–10.0
Median
68,400
66,000
64,700
61,100
–5.4
–10.7
75th percentile
122,000
122,300
115,600
112,400
–5.3
–7.9
90th percentile
188,300
187,500
183,700
179,100
–2.5
–4.9
95th percentile
246,000
232,100
235,600
226,300
–4.2
–8.0
SOURCE Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: Family income is adjusted to 2010 dollars and normalized to account for family size. See Technical Appendix A for details.
income families, and record high unemployment and unemployment duration. Through
2010, past the technical end of the recession, there has been no evidence of recovery in
income across the distribution.
Unemployment and underemployment—working fewer hours or weeks per year—were
hallmarks of the Great Recession, and California is still facing high unemployment numbers.
We find that even for working families, income fell during the Great Recession for the middle
of the distribution and below. Underemployment, rather than a decline in wages, appears to
have driven this income drop. This suggests that policies that create jobs and promote fulltime employment, rather than those that target wage rates, are more likely to be effective in
aiding the recovery of family income.
We do not yet know the timing of the recovery from the Great Recession and how that
recovery will be shared across the income distribution. If previous recovery patterns repeat
themselves, it is likely that the lower half of the income distribution will recover much more
slowly than the upper half, potentially allowing already record-high income inequality to persist. The erosion of low and middle incomes raises concerns about the equity of economic
opportunity in the state.
The most important factor driving the gap between high- and low-income workers is education. Looking ahead, California may need to find innovative ways to promote opportunity
through education, especially so that middle- and lower-income families are not left behind.
Please visit the report’s publication page to find related resources:
www.ppic.org/main/publication.asp?i=965
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The Great Recession and Distribution of Income in California
Introduction
One way to understand the effects of the Great Recession
on California residents is to examine overall trends in
income. In this report, we focus on describing income at
the family level. This includes income from all sources
(including investments and government sources) but is
predominantly composed of earnings from employment.
Because of this, we also closely examine the relationship
between the extensive downturn in the labor market and
the shift in the distribution of family income.
As previous PPIC reports have shown, changes in the
distribution of income are generally greater in California
than in the rest of the United States.1 High-income families
earn more in California and low-income families earn less.
Over time, high incomes in California have risen substantially, whereas low incomes have seen small declines.
Because of these trends, the divide between high- and
low-income families has been larger and faster-growing in
California than in the rest of the nation. At the same time,
fewer and fewer families fall in the middle-income range.
The Great Recession exacerbated these trends. Compared to the rest of the country, California experienced
larger declines in income at the bottom of the distribution and smaller declines at the top—leading to the largest
gap between upper and lower incomes in at least 30 years.
Income at the median shrank by more than 10 percent.
And by 2010, just 49.7 percent of California’s families could
be considered middle income, a new low.
Unemployment spiked sharply during the Great Recession, especially in California. The duration of unemployment has also risen precipitously. But we found that even
for those who had jobs, median income fell. This appears
to have less to do with across-the-board declines in wages
and more to do with decreases in the likelihood of both
full-time work and overall hours worked. These findings
suggest that policies that create jobs and promote full-time
employment are more likely to be effective in aiding recovery than those that target wage rates.
This report first describes the changes in income
distribution in California during the Great Recession.
We then examine the effects of unemployment and
underemployment—labor market outcomes that drove
these changes. Next, we investigate how income changes
have been experienced across regions and demographic
Changes in the distribution of income
are generally greater in California than in the
rest of the United States.
groups in California. Finally, we give context to these
changes by comparing income trends during the Great
Recession to trends in previous recessions.
Data and methods
In this report, we use the Annual Social and Economic Supplement of the CPS data collected by the U.S. Census Bureau
and Bureau of Labor Statistics every March from 1980 to 2011.
The CPS data provide a comprehensive picture of what has
happened to income on an annual basis through March 2010.
We measure income for families rather than individuals or
households.2 We assume that the family is the primary unit
across which income is shared and that nonrelated individuals in a household do not share income. The bulk of our study
describes total family income deriving from all sources—
including work, interest on investments, pensions, unemployment, and welfare—and is measured before tax.3 In some
analyses, we examine family income from work separately.
Our total family income measure excludes nonmonetary
aspects of family income, such as food assistance, nonpecuniary job benefits, or other in-kind transfers. Given these caveats,
we proceed with adjusting CPS family income in a number of
ways. These adjustments make our income estimates comparable over time (i.e., by removing the effect of inflation) and
across family size. Except where noted otherwise, all estimates
presented can be understood as the 2010 dollar equivalent for
a family of four; these adjustments remove the effects of inflation and allow us to compare across families of different sizes.
Further details regarding our data and methods may be found
in Technical Appendix A.
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The Great Recession and Distribution of Income in California
However, before turning to the central analysis, we
will take a moment to discuss our two distinct but equally
useful ways of looking at income distribution.
Tracking Income Distribution
Our data allow two different views of income distribution
in California. The first involves looking at changes in
the distribution of income over time—not for particular
families but for the overall distribution of income across
California’s entire population.4 In this approach, we break
the population into percentile groups: The family at the
90th percentile of income has an income level higher than
90 percent of the population, and the family at the 10th
percentile has income higher than only 10 percent of the
population. In these terms, the exact middle-income, or
median, family is one that falls at the 50th percentile.
This middle-income family is not the same every year but
instead shifts as the income distribution rises and falls.
Examining the distribution of income is therefore
important to understanding how the population is doing
overall. But it is also useful to know how many families fall
into each income category. To find this out, we define categories of income that are roughly constant over time and
see how many families fall into the different groups.
The Great Recession hit incomes
across the distribution—but certain income
groups felt its effects more strongly
than others did.
To do this, we use definitions of income categories familiar to most readers: low income, middle income, and high
income. Since the middle group is otherwise quite broad,
we sometimes separate the middle-income group into
thirds: lower middle, central middle, and upper middle.
To define these groups, we use family income cutoffs common to similar research and based on a federal
measure of standard of living, the federal poverty level of
income (FPL).5 Low income is defined as at or less than
two times the FPL, or $44,200 and below.6 Middle income
is defined as between two and seven times the FPL, or
$44,200 to $154,800.7 This spread is large because we
divide the middle-income group into three roughly equally
sized portions.8 High income is anything above $154,800.
Measuring the Great Recession
In this report, we observe the Great Recession’s effect through
its two official years, 2008 and 2009, as well as the first year
after, 2010.9 Suitable data are not yet available for 2011. In some
tabulations, we compare the Great Recession to the income
peak in 2007, immediately beforehand. This gives an initial
measure of the severity of the decline from peak to trough.
In other tabulations, we compare the official two years of the
recession (2008 and 2009) to the two years immediately preceding it (2006 and 2007). These give a measure of the severity
of the decline from the recent peak period to the period of the
current recession.
Impact of the Great Recession
The Great Recession hit incomes across the distribution—
but certain income groups felt its effects more strongly
than others did. In this section, we detail overall trends in
income during the Great Recession, place these trends into
a long-term context, and consider the shifting size of each
income class over time.
Changes in Income Distribution during the Great
Recession and Beyond
Wage and salary income for the median family in California fell more than 5 percent during the Great Recession
(Table 2). Declines below the median were even larger—
at the 10th percentile, income fell more than 15 percent
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The Great Recession and Distribution of Income in California
Table 2. Family income fell further in California than in the rest of the United States
California
Family income ($)
Percentage change
2007
2008
2009
2010
2007–2009
2009–2010
10th percentile
19,100
17,000
16,200
15,000
–15.2
–7.4
25th percentile
34,600
34,200
32,400
31,200
–6.4
–3.8
68,400
66,000
64,700
61,100
–5.4
–5.6
75th percentile
Median
122,000
122,300
115,600
112,400
–5.3
–2.7
90th percentile
188,300
187,500
183,700
179,100
–2.5
–2.5
95th percentile
246,000
232,100
235,600
226,300
–4.2
–3.9
rest of the united States
Family income ($)
Percentage change
2007
2008
2009
2010
2007–2009
2009–2010
10th percentile
18,900
18,200
17,000
16,300
–10.3
–4.2
25th percentile
37,900
36,500
35,300
34,200
–6.9
–3.2
70,500
67,800
66,100
65,800
–6.3
–0.3
75th percentile
Median
115,900
111,900
111,500
110,500
–3.8
–1.0
90th percentile
170,600
164,800
165,100
164,400
–3.2
–0.4
95th percentile
212,500
204,200
204,700
203,800
–3.7
–0.5
SOURCE Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: Family income is adjusted to 2010 dollars and normalized to account for family size. See Technical Appendix A for details.
between 2007 and 2009. Above the median, family income
also decreased during the recession but by only a fraction
of that amount, and the 90th percentile fell about 2 percent.
Although the recession officially ended in 2009, incomes
continued to fall in the year following. Between 2009 and
2010, median family income fell another 5 percent—the
same decline experienced over the full two years of the
recession. Incomes both above and below the median also
continued to fall into 2010. The rate of the decline across the
distribution was at or above the rate experienced during the
recession, on a per year basis. By that measure, there is no
evidence of a slowing of the income effects of this recession.
The highest income level we can consistently measure is
at the 95th percentile.10 As Table 2 shows, the 95th percentile
of income in California—meaning families that have income
higher than 95 percent of the population—also fell during
the recession. The 95th percentile appeared to rebound by
2009 but took another hit in 2010. Thus, even the top end
of the income distribution does not yet appear to be in
recovery. However, the declines experienced at the top of
the income distribution are over three times smaller than
those experienced at the lowest end of the distribution.
Compared to the effects in the rest of the United States,
the Great Recession’s effects in California are somewhat
mixed. First, note that family income levels in California
were higher for all cutpoints above the median, as well as
the 10th percentile, before the recession. Despite larger
declines between 2007 and 2010, income in all categories
above the median—the 75th, 90th, and 95th percentiles—
in California were still higher than in the rest of the United
States by 2010. The same is not true, however, for the lowest
cutpoint of the distribution. The 10th percentile fell 56 percent
more in California than in the rest of the nation, bringing
it lower than the national level by 2010.
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The Great Recession and Distribution of Income in California
lucy nicholson/ReuteRs
By 2010, families at the 10th percentile had incomes roughly 24 percent
lower than in 1980.
Long-Term Changes in Income Distribution
To put these income distribution changes into a larger
context, we will now examine a longer period: 1980–2010
(Figure 1). This figure shows the percentage change in
income at several points in the income distribution in each
year compared to the base year of 1980.11
All income levels have experienced significant peaks
and valleys over this time period. The 50th percentile
Figure 1. Family income moves with the business cycle
40
90th
percentile
30
75th
percentile
20
10
Median
0
25th
percentile
–10
–20
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
2010
10th
percentile
–30
1980
Percentage change in family income
(base = 1980)
50
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: Family income is adjusted to 2010 dollars and normalized to account for family size. See Technical
Appendix A for details. Shaded regions denote recessionary periods as measured by peaks and troughs in
income levels.
reached its 30-year peak in 2003, with the median family
earning 12 percent more income than in 1980. After the
most recent low in 2004, the median began to recover but
was hit again by the Great Recession. The decline between
2007 and 2010 completely reversed—and more—the
recovery from the previous recession. By 2010, the median
family earned about 1 percent less than the median family
in 1980. However, despite declines during the Great Recession, median family income is still higher than it was in
the lows of the recessions of the 1980s and 1990s.
The same cannot be said for income below the median.
Not only did the Great Recession strip away any gains in
income at the 10th and 25th percentiles that followed the
bust of the dot-com bubble, but it also pushed incomes at
these levels to near-record lows. By 2010, families at the
10th percentile had incomes roughly 24 percent lower than
the 10th percentile did in 1980, and families at the 25th percentile had incomes 12 percent lower. The 10th and 25th
percentiles have not yet fallen to the lows of the 1990s
recession, but by 2010 there is no evidence that incomes
have yet troughed in the Great Recession.
At the other end of the spectrum, the 90th percentile
saw a decline from its 2006 peak. However, the gains at
the 90th percentile over the past three decades mean that
despite the Great Recession, the 90th percentile of income
was still 34 percent higher in 2010 than in 1980. Income
declines at this level are also much less severe than the
declines experienced at lower points in the distribution.
Notably for the 90th percentile, the Great Recession has
not as of yet stripped away the recovery made after 2004.
The 75th percentile of income saw larger declines than
the 90th percentile during the Great Recession, bringing it
to a level last seen in the late 1990s. However, over the longer
term, income at the 75th percentile is still substantially
higher than it was in previous decades. By 2009, the 75th
percentile was earning over 18 percent more than in 1980.
Currently, declines in the lower income levels during
the Great Recession appear similar in severity to those felt
in the early 1990s. But the steepness of the recent declines
outpaced that of the early 1990s. It remains to be seen if
lower income levels will fall further in 2011 and beyond.
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The Great Recession and Distribution of Income in California
90/10 California
90/10 United States
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
75/25 California
75/25 United States
1980
Ratio of family income
13
12
11
10
9
8
7
6
5
4
3
2
1
0
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: All ratios x/y represent family income at percentile x relative to family income at percentile y in
given year. Family income is adjusted to 2010 dollars and normalized to account for family size. See
Technical Appendix A for details.
(Figure 3). We also adjust these figures to account for the
high cost of living in California. The average California
family must have a higher income level to maintain the
same standard of living as the average family in the rest of
the country.14 So far, the Great Recession has not shifted
the size of each income group from its longer-term trend.
But it has created some new highs and lows.
Most Californians live in middle-income families. In
1980, the proportion of these families reached a 30-year
Figure 3. The share of middle-income families has fallen in
California
70
Middle income
60
COLA middle
50
COLA low
Low income
40
30
20
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
0
2010
High income
COLA high
10
1980
How Big Is Each Income Group in California?
We now turn to our second view of income in California,
which holds categories of income constant and asks how
many families fall into each category. Here, we show three
income categories—low, middle, and high—over time
Figure 2. Gaps between upper- and lower-income families are
larger in California than in the rest of the United States
Percentage
The Growing Income Gap
In California, the gap between lower- and upper-income
families has been larger than in the rest of the nation for
many decades and has tended to increase in recessionary
periods. The Great Recession is no exception.
A common way to examine this gap is to look at the
ratio of income for families at the top of the distribution
to families at the bottom. Here, we present two standard
income ratios: the ratio of income at the 90th relative to the
10th percentile (the “90/10 ratio”) and at the 75th relative to
the 25th percentile (the “75/25 ratio”).12 The former is a more
extreme measure of high versus low income, whereas the latter is less so because the 75th and 25th percentiles are closer
to the middle of the distribution. These measures are useful
for understanding gaps between rich and poor, for example,
as measured by shifts in the overall distribution of income.
During the Great Recession in California, the 90/10
ratio jumped to its highest level ever, 11.9, in 2010 (Figure 2).13 This means that families at the 90th percentile
(where only a tenth of the population does better in terms
of income) had income 11.9 times higher than families at
the 10th percentile (where only a tenth of the population
does worse). The disparity between high and low incomes
during the Great Recession even exceeded the gap experienced during the long and severe recession of the mid-1990s,
during which the 90/10 ratio reached 11.0 (in 1997).
In the rest of the country, the 90/10 ratio also grew to
a new high during the Great Recession, to 10.1 by 2010. But
this ratio remained much smaller in the nation as a whole
than in California alone.
The gap between income levels was less volatile toward
the middle of the distribution. The 75/25 ratio remained
fairly steady, at roughly 3.6 in California and 3.2 in the rest
of the United States in 2010, both up just one-tenth of a
point from 2007.
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: Because of data availability, we are able to adjust for cost of living (COLA) only from 1985 forward.
See note 8 and Technical Appendix A for details on the definition of income categories.
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The Great Recession and Distribution of Income in California
high of 60 percent, a number that has been trending downward ever since. The percentage of individuals in middleincome families reached a new low of 49.7 percent in 2010.
At the same time, the low-income category increased to
36.6 percent, a level not experienced for over a decade. And
the high-income group dropped slightly to 13.7 percent, a
level last experienced around 2001.
On net, the recession and the year following have
worsened California’s income picture as viewed through
these three income categories. Before the recession, the
long-term trend showed net improvement: The share of
families categorized as low income was relatively stable,
and the declining share counted as middle income was
supplanted by an increasing high-income share. However,
during the recession and the year following, the trend
reversed: Declines in the share of families in high- and
middle-income categories were replaced with an increasing
share classified as low income.
The distribution of Californians across income groups
mimics the trend in the United States overall.15 However,
California’s families are less likely than those in other
states to be counted as middle income and are more likely
to be either low or high income. In the rest of the country,
as of 2010, 55 percent are middle income, 33 percent low
income, and 12 percent high income.
The Great Recession led to persistently
high unemployment levels,
with California’s employment picture among
the worst in the nation.
When income is adjusted for California’s higher cost of
living, we find that even fewer individuals—47.9 percent—
were in families considered middle income in 2010. In
our data going back to 1985, the middle-income group in
the state has never fallen to a level this low. After similar
adjustments, the low-income group rises to 42.9 percent
and the high-income group falls to 9.3 percent.
The Ef fects of Unemployment
and Underemployment
The Great Recession led to persistently high unemployment levels, with California’s employment picture among
the worst in the nation. By the official end of the recession
in June 2009, California’s unemployment rate had climbed
to 11.6 percent, compared to 9.5 percent in the nation as
a whole. However, the official end of the recession did not
signal a recovery in employment. In June 2010, a full year
after the recession ended, California’s unemployment
rate stood at 12.3 percent; the national rate was 9.5 percent.16 This was the state’s highest unemployment rate
since 1980—and it was much higher than in other recessions in the last three decades.17 Although the Great
Recession has ended, as measured by other official indicators,18 the employment picture remains bleak, particularly
for California. Forecasts suggest that the unemployment
rate will decrease slowly, with high rates continuing into
the near future.19
Since employment is the main source of income for
most Californians, the unemployment rate is typically
highly correlated with changes in income: Troughs in
median family income are usually coincident with peaks
in the unemployment rate. Coming out of recessionary
periods, we typically see decreases in the unemployment
rate and concurrent increases in median family income
(see Technical Appendix C for a detailed figure).
How did California’s employment trends during the
Great Recession correlate with changes in the state’s distribution of income? In this section, we begin by detailing
exactly how much labor market earnings matter for family
income. Next, we identify associations—rather than causal
relationships—between employment trends and changes
in income distribution. Throughout, our focus is on recent
trends—for the most part, we compare the two relatively
prosperous years before the recession to the two official years
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The Great Recession and Distribution of Income in California
of the Great Recession and then examine what has happened in 2010, the first year following the official recession.
The Many Sources of Family Income
Family income derives from multiple sources. Earnings
from work clearly are related to family economic wellbeing. However, other sources of income matter as well. In
times of constricted labor market opportunities, income
from sources other than wages—such as unemployment
compensation, welfare, or earnings on investments—can
compensate for declines in family income.
Both before and during the Great Recession, male
labor market earnings made up the majority of family
income across the spectrum (Figure 4). These earnings
contribute slightly less to family income in the low-income
group than in the middle-income group.20 During the
Great Recession, male earnings declined as a share of total
family income in all groups except the upper-middleincome category.
Female earnings are the second most sizable component
in family income. During the Great Recession, the importance of female earnings increased relative to other sources—
by 2 percentage points for lower-income families and by
4 percentage points for lower-middle-income families.
For low-income families, the third most important
source of income is the government; this includes unemployment, Social Security, public assistance, and Supplemental Security Income. During the Great Recession,
income from government transfers was increasingly
important, growing from 10 to 12 percent. Government
transfers are a smaller fraction of family income for other
groups, but during the Great Recession they doubled across
the board. For example, lower-middle-income families
received 3.8 percent of their income from government
transfers before the Great Recession but 6.3 percent during the recession (2008–2009) and 7.2 percent in 2010 (see
Technical Appendix C for details).
External research finds that compared to previous
recessions, government transfers played a larger role in
supporting income in the Great Recession than they did in
previous recessions.21 Thus, even though the share of family
income from government sources is small relative to the
share from earnings, it is a qualitatively important factor.
Unemployment
As we have seen, employment income makes up the bulk of
overall income for California families. Of course, employment differs across California’s income groups. During the
Figure 4. Male earnings are the major source of family income, even during the Great Recession
100
90
10%
80
Percentage
70
27%
4%
2%
1%
29%
33%
32%
Capital income
Other
Government
Female earnings
Male earnings
60
50
40
30
6%
4%
2%
33%
35%
31%
54%
56%
57%
61%
Low
Lower middle
Central middle
Upper middle
12%
58%
63%
59%
60%
Low
Lower middle
Central middle
Upper middle
20
29%
10
0
2008–2009 average
2006–2007 average
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: Income shares in each chart represent the averages across each two-year period. Although income category definitions are based on normalized family income, income shares are based on inflation-adjusted
income and are not normalized for family size. The high-income group is not included here because shares are heavily affected by top-coding. See Technical Appendix A for details on data construction and Technical
Appendix C for a similar figure showing the distribution of income for families in 2010. We do not track families in each income category over time; rather, each chart should be viewed as a snapshot of families in the
given period who happen to fall into the given income category. Thus, changes in income sources are confounded here with changes in composition of families in each income category.
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The Great Recession and Distribution of Income in California
Great Recession, unemployment jumped in all income
groups, at least doubling the rate of 2007. Unemployment
spiked most steeply for low- and lower-middle-income
groups (Figure 5). By 2011, 12.2 percent of Californians
were unemployed. Among low-income individuals, the
unemployment rate was even higher—23.2 percent. Since
income from working makes up the vast majority of family
income, it is not surprising that the groups experiencing
the largest declines in income would also have the highest
unemployment rate; indeed, labor market outcomes determine, to a large extent, the income category into which a
family is classified.
Only in the low- and lower-middle-income groups did
the unemployment rate show no sign of tapering off by 2011.
Although for the other income groups there are signs of
a turnaround, the unemployment rate remains stubbornly
high—higher than seen in decades.
Not only has the recession brought about rates of
unemployment higher than in previous recessions, but
the duration of unemployment is also longer than in
previous recessions. The average spell of unemployment
has increased steadily from the beginning of the Great
Recession through 2011, from an average of 15.8 weeks
to 37.4 weeks, respectively (see Technical Appendix C for
further detail). Long spells of unemployment have been
Figure 5. Unemployment rate by income group, in California
25
Low income
Percentage
20
15
Lower middle
All classes
10
5
Central middle
Upper middle
High income
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTE: See Technical Appendix A for details on the definitions of income groups.
experienced across all income categories: from an average
of 29 weeks for upper-middle-income unemployed workers
to 40 weeks for low-income unemployed workers in 2011.
During the recession of the early 1990s, the average duration of unemployment peaked at 23.6 weeks.
Not only has the recession brought about
rates of unemployment higher
than in previous recessions,
but the duration of unemployment is also
longer than in previous recessions.
Underemployment
High unemployment rates largely explain the decline in
income across the distribution during the Great Recession.
But family income declined even for many who had jobs
during the Great Recession. Underemployment—defined
here as working less than a full work-week—played a significant role in these declines.
By 2008–2009, median income from wages and salary
for low-income workers had fallen 16 percent from what
it had been two years before (Table 3).22 For lower-middle
and central-middle workers, the drop was 3 to 4 percent.
It remained about the same for upper-middle and highincome workers.
Even though these individuals were working, they
worked less, on average, during the Great Recession—for
example, the percentage of workers in the low-income
group who reported full-time employment fell 10.1 percent
during the Great Recession (where full time is defined as
working at least 35 weeks). The rate of full-time employment fell for all other income groups, as well.
Average hours worked also fell during the Great Recession. On average, workers in low-income families worked
11 percent fewer hours—a decline about seven times larger
than that experienced by the central-middle-income fami-
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11
The Great Recession and Distribution of Income in California
Table 3. Many individuals worked less during the Great Recession
Change during the recession (%)
(from 2006–2007 to 2008–2009)
Family income
category
Low
Lower middle
median
income
from wage
and salary
Percentage
employed
full time
average
hours
worked
Change in the year following the recession (%)
(from 2008–2009 to 2010)
median
hourly wage
median
income
from wage
and salary
Percentage
employed
full time
average
hours
worked
median
hourly wage
–15.5
–10.1
–10.5
–2.1
–1.3
1.4
–2.1
4.0
–3.7
–6.4
–6.1
5.0
–1.3
3.5
0.4
–1.3
Central middle
–3.3
–0.4
–1.5
3.2
1.1
2.2
0.1
–0.5
Upper middle
–0.5
–0.5
–0.6
3.6
4.1
2.4
0.1
1.8
High
–0.5
–0.8
–1.0
–1.2
3.4
3.2
1.2
3.9
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: All statistics pertain to wage earners who worked at least one week in the given year and are calculated on a per worker basis. Self-employed workers are excluded. See Technical Appendix C for details and
underlying estimates.
lies. (These statistics exclude workers who were unemployed all year but include workers who were unemployed
part of the year.)
During the Great Recession, the average hourly wage
rate fell for workers in the low-income and high-income
groups by a small amount but increased or stayed about
the same on average for workers in other income groups.
This pattern indicates that underemployment rather than
declining wages, for most workers, was behind falling
earnings. Because inflation was extremely low during
the Great Recession, it is indeed unsurprising that wages
would remain roughly constant and that employers would
instead adjust hours or number of employees.23
These findings provide some perspective on the relative importance of unemployment and underemployment
in driving the income trends we have observed. Recent
research in the national context suggests that the decline
in male employment was the most important factor in the
decline in median income during the Great Recession. This
factor is about three times more important than any other
in driving down median incomes during the recession.24
The same appears to be true for California. In addition, it
appears that income declines in the Great Recession are
strongly related to (1) whether family earners are employed
and (2) for those who are employed, how much they worked.
In the year following the official recession, there are
small signs that for those working, labor market conditions were beginning to improve, at least for higher-income
workers. Across all income categories, the percentage of
workers employed full time increased between the years of
the official recession to the year after. Despite this positive
sign, there was little improvement in average hours worked
DaviD maunG/BloomBeRG via Getty imaGes
There are signs of a turnaround for some income groups, but for
low- and lower-middle-income groups the unemployment rate remains
stubbornly high.
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12
The Great Recession and Distribution of Income in California
and mixed outcomes in hourly wage rates. Whereas median
income increased for upper-middle- and high-income
workers, it continued to decline for low- and lower-middleincome workers. (Indeed, relatively worse labor market
outcomes partially drove the classification into these lowerincome groups.) Although signs of underemployment for
middle- and high-income workers began to wane by 2010,
the mixed picture for lower-income workers reveals a labor
heacphotos/FlickR/cReative commons
The Great Recession hit Hispanic and black families hard; they experienced the largest declines in median family income.
market that, by 2010, had not improved drastically, even
for those employed. In addition, as we noted in the previous section, their rate of unemployment had yet to turn
around.
Who Was Most Af fected by
the Great Recession?
As we have seen, the Great Recession affected all Californians. Incomes fell and unemployment grew for all income
groups, though for those in the low- and lower-middle-
income groups the effects have been more severe. In this
section, we assess the demographic and geographic components of the income shocks of the Great Recession.
Changes across Demographic Groups
Throughout this section, we define demographic groups
through the head of the family. For example, we categorize
a family as “immigrant” if the head of the family reports
that he or she is an immigrant. Similarly, we consider a
family to be white if the head of the family reports that
he or she is white. This is a straightforward way to classify families according to demographic characteristics,
but it does overlook the subtlety of mixed-type families.
For example, many families classified here as immigrant
include native-born children. However, since income
changes are driven by labor market conditions that primarily affect the head of the family, our method allows for
a basic but important overview of the Great Recession’s
effect on various demographic groups.
The Great Recession intensified income and employment differences among demographic groups. Even so,
declines were experienced across the demographic spectrum. Figure 6 shows nearly across-the-board declines in
income from the peak years before the recession to the
official two years of the recession and beyond, for families
across education, ethnicity, nativity, and structure. From
the peak years to 2010, no demographic group in California experienced gains in median income.
Ethnicity and Nativity
Many Hispanic and black families were struggling economically even before the Great Recession. Hispanic
families in California have the lowest median income level
across ethnic groups, followed by black families.
The Great Recession hit these two groups hard. They
experienced the largest declines in median family income,
at 8 percent for Hispanic families and 25 percent for black
families. Correspondingly, the unemployment rate for labor
force participants in families headed by blacks and Hispanics
jumped to the highest levels across ethnic groups during
the Great Recession, to 19 and 15 percent in 2008–2009,
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13
The Great Recession and Distribution of Income in California
Figure 6. Median income fell across all of California’s demographic groups during the Great Recession and beyond
140,000
2006–2007
2008–2009
2010
120,000
Income ($)
100,000
80,000
–8.1%
–9.9%
–8.3%
–3.3%
–13.3%
–10.4% –6.1%
–8.1%
–9.4%
40,000
–8.6%
–9.1%
–25.1%
–8.6%
60,000
–14.3%
–7.8%
–5.3%
20,000
Na
tiv
e
Im
m
ig
ra
nt
ng
le
,n
So
Si
Si
o
ch
ild
ng
re
n
le
M
,c
ar
hi
rie
ld
d,
re
n
no
c
hi
M
ld
ar
re
rie
n
d,
ch
ild
re
n
n
ia
As
Bl
ac
k
te
Hi
sp
an
ic
W
hi
ec
Co
ol
lle
le
ge
ge
gr
ad
ua
te
ua
te
m
HS
gr
ad
HS
Le
s
st
ha
n
.
eU
.S
th
of
Re
st
Ca
lif
o
rn
i
a
0
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: Income is adjusted to 2010 dollars and normalized to account for family size. Characteristics are defined by head of family; outcomes pertain to family or labor force participants in the family. Note that the
race/ethnicity groups are mutually exclusive. Percentage changes measure the change from 2006–2007 to 2010. All demographic breakdowns pertain to California families only. The 2006–2007 and 2008–2009 bars
indicate the median over the two years pooled for larger sample size.
respectively (see Technical Appendix C for details). The
unemployment rate in families headed by blacks was substantially higher than for families headed by Hispanics by
2010, despite having reached near parity during the recession.
Families headed by Asians were less affected, and there
was a comparatively small 3 percent decline in income from
peak to trough. Asian unemployment rates were the lowest
across ethnic groups before the recession—at 4 percent—
and remained the lowest during the recession, despite having more than doubled to 9 percent by 2010.
The median white family has the highest family income
of any ethnic group in California. This fell during the Great
Recession by about 3 percent and by another 5.6 percent
in 2010. The total decline in median income for white
families was similar to that of Hispanic families and more
than for Asian families. The unemployment rate for white
families rose from 4.5 percent before the recession to
10.2 percent in 2010—a rate still lower than that of Hispanic or black families in California.
Although it is correlated with ethnicity, we look separately at nativity, finding that both native and immigrant
families experienced sizable declines in income at the
median. Family income fell a total of 14 percent for families
headed by a native-born person and 5 percent for families
headed by a foreign-born person. However, the level of
income remained higher for native-headed households
despite the sharp decline. Although both groups experienced similar changes in unemployment, the rate for households headed by natives was lower than that of households
headed by immigrants both before and during the recession
(see Technical Appendix C).
Many Hispanic and black families
were struggling economically even before
the Great Recession.
Educational Attainment
Educational attainment mattered during the Great Recession. The more education, the higher the median income
and the lower the unemployment rate among families
in California. However, the median family income of all
education groups declined through 2010.
Families headed by less-educated adults, who already
had high unemployment rates before the recession (on the
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14
The Great Recession and Distribution of Income in California
order of 11 percent), experienced the largest increases in
unemployment and corresponding decreases in income.
We estimate that over 19 percent of workers in families
headed by someone who had not graduated from high
school were unemployed over 2008–2009. Fortunately, the
unemployment rate for this group did not increase in 2010
(see Technical Appendix C).
As one would expect, median family income is higher
the higher the educational attainment of the head of the
family. However, surprisingly, one group of more-educated
families—those with some college education—experienced
the largest declines during the Great Recession. The median
family income for this group fell 13 percent, compared to
8 percent among college graduates and 9 percent among
high school graduates.
Family Structure
Changes in income varied less across different family types
during the Great Recession than across other demographic
categories. From the peak to 2010, median income fell
between 8 and 10 percent for all family types. The median
income of married people with no children experienced
the largest declines—at 10 percent—on a family-sizeadjusted basis.25
The unemployment rate increased to
historically high levels in California during the
Great Recession, but it was precipitously higher
in some regions than in others.
Single-parent families have the lowest median-income
levels of any family type but experienced a somewhat
smaller decline. These families had a small increase in
income at the median during the two official years of the
recession but a marked decline in 2010. This is correlated to
their high rate of unemployment, at 18 percent in 2010. This
group of families is headed by adults with a lower attach-
ment to the labor force than other family types. Before the
Great Recession, only 55 percent of single parents were
employed, compared to 62 percent among single parents
without children, 58 percent among those married without children, and 63 percent among those married with
children. For this reason, total income for single-parent
families is slightly less tied—at least directly—to changes
in labor market conditions.26
Changes across Regions
The effects of the Great Recession on income varied widely
across California’s regions. Industries are not distributed
equally across the state, nor are people. Over 40 percent of
the population lives in just two areas: the San Francisco
Bay Area and Los Angeles County. Trends in these regions
therefore tend to drive trends for the state as a whole.
However, for a closer look at what happened around the
state, we broke California into eight large regions: the San
Francisco Bay Area; Los Angeles, Orange, and San Diego
Counties; the Inland Empire; the Central Coast; and the
Sacramento and San Joaquin regions.27
As mentioned above, the unemployment rate increased
to historically high levels in California during the Great
Recession, but it was precipitously higher in some regions
than in others. The Inland Empire, Central Coast, Sacramento, and San Joaquin regions all experienced unemployment rates higher than the California average in 2008–2010.28
However, no region was spared—the lowest regional unemployment rate we estimate occurred in San Diego County,
and even there the rate was 7.9 percent in 2010—a level not
seen in the state since about 1995 or in the country as a
whole since about 1984.
It comes as no surprise, then, that most regions saw
declines in income for the median family (Figure 7). The
largest declines occurred in the Central Coast, at 18 percent, followed by the Sacramento and San Joaquin regions,
which both fell 16 percent. Only in San Diego County did
median family income increase. In the Inland Empire,
there was essentially no change in median family income
before and during the Great Recession but about a 10 percent decline in 2010.
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15
The Great Recession and Distribution of Income in California
Figure 7. Median income fell across all of California during the Great Recession and beyond
100,000
90,000
Income ($)
80,000
–10.4%
70,000
2006–2007
2008–2009
2010
–12.1%
–12.7%
4.8%
–11.3%
60,000
–14.0%
–15.9%
–9.7%
–17.9%
–15.6%
50,000
40,000
30,000
20,000
a
rn
i
of
st
Re
Sa
n
Jo
a
qu
in
Ca
lif
o
re
gi
o
re
gi
o
en
to
Sa
n
n
st
lC
oa
cr
am
In
la
n
d
Em
Co
u
eg
o
Di
n
Sa
Ce
nt
ra
pi
re
nt
y
nt
y
ge
Co
u
Or
an
An
g
Co eles
un
ty
Lo
s
Fr
an
Ba cis
y A co
re
a
n
Sa
Ca
lif
o
rn
i
ao
ve
ra
ll
10,000
0
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: Income is adjusted to 2010 dollars and normalized to account for family size. Sample size for cells, as well as further detail on calculations, is available in Technical Appendix C. Percentage changes measure the
change from 2006–2007 to 2010. The 2006–2007 and 2008–2009 bars indicate the median income over the two years pooled for larger sample size.
Accordingly, the share of families that qualified as low
income increased in most regions, and the share of middleincome families decreased (see Technical Appendix C for
detailed tables). The only exception was San Diego County,
where the share of low-income families decreased about
3 percentage points. The San Joaquin and Central Coast
regions had the highest percentage of families with low
incomes before the recession, and the downturn did not
change that fact. Similarly, the San Francisco Bay Area had
the lowest rate before the recession, and that did not change.
When estimates are adjusted for cost-of-living differences across regions, we find a much larger share of families
to be low income. This is particularly true for high cost-ofliving areas such as San Francisco, Los Angeles, and the
Central Coast. For example, 52 percent of families in Los
Angeles County were considered low income in 2010 after
accounting for that area’s cost of living, making it the region
with the highest percentage of low-income families. In
relatively lower cost-of-living areas such as the Sacramento
region, accounting for cost of living did not have as big an
effect on the percentage of families classified as low income.
Overall, the Great Recession did not significantly
change California’s regions in terms of family income
characteristics. The areas with relatively higher median
income before the Great Recession remained among the
highest afterward. Regions where more families could be
classified as low income likewise retained higher concentrations of low-income families.
The Great Recession in
Historical Context
Family income tends to decline along with national income
during a recession and rebound in a recovery. However,
recessionary and recovery periods have not led to equal gains
(or losses) across the income spectrum. As we have seen,
the lower end of the income distribution saw much larger
declines than the upper end during the Great Recession.
How do these trends compare to those of earlier recessions?
All recessions have affected the lower end of the
income distribution more than the higher end (Table 4).
The 10th percentile of income fell 22 percent in the Great
Recession, which makes the decline during the dot-com
bust of the early 2000s look mild in comparison. Officially,
the Great Recession lasted from 2007 to 2009, but we aim
to capture here the full peak-to-trough cycle as reflected in
the dating of all expansions and recession in Table 4.29
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16
The Great Recession and Distribution of Income in California
Table 4. California family income varies with the business cycle
Incomes during economic growth (%)
1983–1989
Incomes during economic decline (%)
1993–2001
2004–2007
1980–1983
1989–1993
2001–2004
2007–2010
10th percentile
14
28
5
–18
–20
–3
–22
25th percentile
10
23
1
–11
–16
–4
–10
Median
11
16
6
–4
–13
–2
–11
75th percentile
12
9
5
0
–2
1
–8
90th percentile
18
16
7
0
–3
–1
–5
95th percentile
21
16
10
4
–2
0
–8
SOURCE: Authors’ calculations from the Current Population Survey of the U.S. Census Bureau.
NOTES: Family income is adjusted to 2010 dollars and normalized to account for family size. See Technical Appendix A for details. These business cycle dates derive from peaks and troughs in the income distribution; for changes in income based on the official business cycle dates, see Technical Appendix C for alternative definitions.
However, compared to the recession of the early 1990s,
the income declines at the low end of the distribution in
the Great Recession do not look particularly severe. In fact,
for the median of the distribution and 25th percentile, the
early 1990s recession led to larger percentage declines in
income. However, declines at the top end of the income
distribution in the current recession are more than double
the declines in the early 1980s and early 1990s recessions.
It is possible that 2010 marks the low point in family
income for the most current recession. However, it is also
possible that future data will show further declines from
those documented here. The early 1990s recession took
roughly four years to hit its lowest mark; it remains to be
seen whether the fourth year (2011) or beyond will bring
the mark even lower for incomes in the Great Recession.
It is unclear whether
the steep decline of incomes in
the Great Recession will continue or
incomes will start to recover by 2011.
On a per year basis, the Great Recession has caused
steeper declines in income than did the early 1990s reces-
sion, at the lowest and highest ends of the distribution. The
low end of the income distribution fell 7.2 percent per year
in the Great Recession and 4.9 percent per year in the
early 1990s recession (but a steeper 9 percent per year in
the early 1980s recession). For the top of the distribution,
declines in the Great Recession were much steeper than
in any other recession in the past three decades. The
75th percentile fell 2.6 percent per year—five times the
rate in the early 1990s. The 90th percentile fell 1.6 percent
per year in the Great Recession—two times the rate.
Because the Great Recession is not clearly worse than
earlier recessions, at least in the depth of the income
declines experienced at some points in the distribution, we
may be tempted to conclude that family income will recover
as it has historically. But recovery periods have not always
benefited income groups equally across the distribution.
For example, in the economic growth period immediately before the Great Recession, income gains at the top
of the distribution were larger than those at the bottom.
This, combined with the fact that incomes at the lower end
declined more than those at the top during the Great Recession, means that income at the lower levels has fallen much
further behind income at the upper levels.
It is unclear whether the steep decline of incomes in
the Great Recession will continue or incomes will start
to recover by 2011. If, as historically, the top of the distribution recovers more quickly from the Great Recession,
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The Great Recession and Distribution of Income in California
we can expect the gap between upper- and lower-income
families to persist.
Conclusion
So far, the Great Recession has had the largest negative
effects on family income at the lower end of the distribution. Between the peak of the business cycle in 2007 and
the official end of the recession in 2009, the 10th percentile
of income fell 15 percent—three times the decline at the
median and six times the decline at the 90th percentile.
This disparity in the size of the income shock during the
Great Recession led to the largest gap between upper- and
lower-income Californians in at least 30 years, with the
90th percentile of family income 11.9 times higher than that
at the 10th percentile. This gap is larger in California than in
the rest of the United States because the bottom of the income
Not only has the income gap
between lower- and upper-income
families widened, but the percentage
of middle-income families has also
continued to shrink.
distribution fell more sharply than the top in California.
By 2010, technically after the recession ended, the income
picture only worsened. The low end of the income distribution fell another 7 percent and the upper end fell another
3 percent, bringing income inequality to a record high.
Not only has the income gap between lower- and
upper-income families widened, but the percentage of
middle-income families has also continued to shrink. By
2010, just less than a majority—49.7 percent—of California’s
families could be considered middle income, compared
to 54.9 percent in the rest of the country. When adjusted
17
for cost of living, only 47.9 percent of California’s families
could be considered middle income.
Roughly 90 percent of total family income comes
from salary and wages. We find that both unemployment
and underemployment contributed to declines in family
income across the spectrum. Even for workers who were
employed during the recession, median income fell—
a result of decreases in the likelihood of both full-time
employment and hours worked rather than of across-theboard declines in wages. These facts about unemployment
and underemployment suggest that policies that create jobs
and promote full-time employment, rather than those that
target wage rates, are more likely to be effective in aiding
the recovery of family income.
Trends in income across demographic groups and
geographic areas did not substantially shift during the
Great Recession. Rather, the recession tended to amplify
preexisting differences. Across ethnic groups, black and
Hispanic families, already with lower median income,
experienced the largest declines during the Great Recession. Median income for Asian families had the smallest
decline. Although the recession affected workers at all education levels, families with more highly educated workers
were buffered somewhat from the downturn. The unemployment rate was the lowest and median family income
was the highest among college-educated workers.
How does the Great Recession stack up against other
recessions of the past three decades? Through 2010, there is
no evidence of recovery in income across the distribution.
Until we experience the trough of incomes, it is somewhat
premature to compare the Great Recession to previous
recessions. However, to date, it appears that the Great
Recession has brought more severe declines in income than
in previous recessions for most points in the distribution.
Only at the middle and the 25th percentile do the declines
appear to be in between the severity of those experienced
in the recessions of the early 1980s and 1990s.
Labor market conditions in 2011 give some hint as to
potential recovery across the distribution. Unemployment
rates have continued to increase for low-income workers
through 2011 but appear to be tapering off for workers in
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18
The Great Recession and Distribution of Income in California
upper-middle- and high-income categories. We would thus
expect, if anything, for 2011 to bring improvements at the
upper end of the income distribution.
The long-term trends in income distribution suggest
that incomes across the distribution generally rebound,
despite severe downturns. However, those recoveries vary
in swiftness and magnitude across the distribution. In
most recessions over the last 30 years, the top percentiles
of income rebounded relatively quickly and soon began
gaining ground relative to prerecession levels. At the same
time, growth in income at the middle of the distribution
and below generally saw relatively slow increases, not even
always reaching prerecession income levels. Most starkly,
in the recession and recovery cycle since 1980, the bottom
10 percent of the income distribution in California has
never fully caught up to initial levels.
We do not yet know the timing of the recovery from
the Great Recession and how recovery will be shared
across the income distribution, although both will play
a role in the future of family economic well-being. However, long-term trends in the distribution of income are
not only influenced by recessions and recoveries but are
also tied to broader underlying economic trends. International trade, shifts in industry mix, changes in labor force
participation, the role of unions, and international migration are a few of the factors that drive long-term trends in
income distribution. The most important, however, is the
increasing demand for skill in the labor market. Economic
opportunity in the new economy is inextricably linked to
education. Policy has a role to play in creating economic
opportunity across the income distribution, particularly
through education. Looking ahead, California may need
to find innovative ways to promote opportunity, especially
so that middle- and lower-income families do not get left
behind. ●
Technical Appendices to this report are available on the PPIC website:
www.ppic.org/content/pubs/other/1211SBR_appendix.pdf
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The Great Recession and Distribution of Income in California
19
Notes
1
Reed (2004); Reed (1999); Reed, Haber, and Mameesh (1996).
CPS data measure households, families, and individuals.
Households are made up of one or more families, and families
are made up of one or more individuals. A single person living
alone, for example, would be a family and household of one.
For many, a family and household are the same, for example,
a nuclear family living alone. Families pool resources in many
ways. For example, if an adult family member becomes unemployed, another adult in the family unit may choose to enter the
workforce or to work more hours.
2
Thus, for example, the offsetting effect of Earned Income Tax
Credit participation is not measured here.
3
Other data sources, such as the CPS Merged Outgoing Rotation Group or the Survey of Income and Program Participation,
are able to track families over time. However, these data are not
recent enough, or do not include enough Californians, to fully
describe changes experienced during the Great Recession.
4
Note that although we do not focus on poverty in this report,
the FPL is the key to understanding poverty-rate statistics. A
family at or below the FPL is deemed to be “in poverty.”
5
All income figures in this paragraph are measured in 2009
dollars.
6
To make the FPL consistent over time, the Census Bureau
adjusts this level to reflect changes in the rate of inflation and
standard of living. The FPL is arguably too simplistic a measure
of economic well-being, as it refers only to pretax monetary
income. Nonmonetary sources of income in the form of worker
benefits and food stamps, for example, supplement income for
many families. Indeed, the Census Bureau, in tandem with other
agencies and researchers, have developed a new supplemental
measure of poverty. This study focuses on the entire distribution
of income rather than on poverty alone, but the supplemental
poverty measure will be important to consider in future work.
Researchers have used similar thresholds to define income
categories in previous work, in particular for the three primary
groups: low, middle, and high.
7
Our breakdown of the middle-income group into three segments was selected so that the thresholds were roughly round
and divided the middle group into roughly equal portions.
The income cutoffs, in 2010 dollars, are: below $44,000 for low
income, up to $66,000 for lower-middle income, up to $110,500
for central-middle income, up to $155,000 for upper-middle
income, and above that for high income.
The National Bureau of Economic Research defines the official
business cycle dates based on peaks and troughs in economic
activity, broadly defined. These economic activity indicators
include real gross domestic product, employment, income,
sales, and industrial production, among others. Because not all
indicators peak and trough together, we may continue to see
declines in employment and income, for example, well after
other economic activity indicators have begun to rebound. For
this reason, some effects of recessions may persist following the
official trough date.
9
CPS data do not allow us to measure the very highest incomes
in the distribution. Other researchers have used tax return data
to study the top 1 percent of the income distribution, and that
research shows the marked increasing concentration of wealth at
the very top of the income distribution. For example, Piketty and
Saez (2003) find that the share of income earned by the top 1 percent of the distribution is higher now than before World War II.
10
The base year in Figure 1 is important. If we choose a different
starting point, the picture could look very different. Note that
1980 was a near-peak year in the business cycle, meaning that
income levels were relatively high. It was followed soon after by
a recession. However, by comparing the y-axis values for any
two points, we can understand changes across years irrespective of the base year. For example, if the y value is the same for
two points, then there was no difference in income in those two
years. Also, one can recover the percentage change between any
two years by taking the difference (% changet – % changet+x) and
dividing by 1 + % changet.
11
These metrics of inequality—the gap between various points
in the income distribution—are standard in the research literature. For example, see seminal papers such as Juhn, Murphy, and
Pierce (1993) and recent work such as Autor, Katz, and Kearney
(2008).
12
The inequality measures are at the highest level since at least
1967, when the CPS data began to be collected.
13
8
For a detailed discussion of cost-of-living adjustments, see
Technical Appendix A. The adjustment takes into account only
differences in housing costs.
14
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20
The Great Recession and Distribution of Income in California
See Technical Appendix C for a comparable figure on income
categories for the rest of the United States.
15
Bureau of Labor Statistics, Local Area Unemployment Statistics, and Current Population Survey official estimates. See
Technical Appendix C for the full time series on unemployment
rates in California and the United States.
16
Those recessions occurred in the early 1980s, the early 1990s
(actually a “double-dip” recession precipitated by Black Monday
of 1987), and early 2000s (the dot-com bust). (See Technical
Appendix C.)
17
experience economic hardships. However, the nominal wages
received by an employee do increase or decrease with the inflation rate. In an inflationary period, employers can pay less in
real wages despite the fact that nominal wages do not change.
And vice versa. Since inflation was extremely low during the
Great Recession, and since employers have a hard time decreasing wages, they are more likely to respond by adjusting worker
hours or the number of employees. So we would expect to see
more movement in employment measures than in wage rates.
24
Burkhauser and Larrimore (2011).
Recall that these income statistics are adjusted to make families comparable regardless of their size. Thus, median-income
estimates for families with a single head and no children are
directly comparable to those for single-headed families with
children. These estimates reveal that even on a per person basis,
single families with no children earn more than single families
with children. And married families with no children earned
more on a per person basis than any other type of family.
25
National Bureau of Economic Research Business Cycle Dating Committee statement, September 20, 2010, dates the Great
Recession from December 2007 to June 2009.
18
The Legislative Analyst’s Office in California estimates that the
unemployment rate in the state will not recover to prerecession
levels before 2015. See Kolko (2011) and a similar forecast for the
United States from Federal Reserve chairman Ben Bernanke (2011).
19
Single-parent families tend to rely on government sources of
income more heavily than families with children and two earners.
See Technical Appendix C for unemployment details.
26
Note that the CPS data do not allow us to measure income
shares for the high-income group. To protect the confidentiality
of respondents, the CPS replaces top income values with a set
value or “top-code.” Any income above the top-coded value is
thus unknown to the researcher.
20
21
Burkhauser and Larrimore (2011).
We measure these statistics over two-year periods to obtain
more reliable estimates. We thus compare the two years of the
Great Recession, 2008–2009, to the two years before, 2006–2007.
Furthermore, because these estimates are on a per worker basis,
they are not normalized to account for family size, as previous
family income estimates were. However, dollar amounts are
adjusted to 2009 levels. Workers are defined as individuals who
report working at least one week of the year. See Technical Appendix C for the annual estimates of these measures as well as similar
statistics pertaining to workers in the rest of the United States.
22
These regions are measured as follows: San Francisco Bay Area
includes the counties of Alameda, Contra Costa, Marin, Napa,
San Francisco, Solano, Sonoma, San Mateo, and Santa Clara;
Los Angeles County, Orange County, and San Diego County are
measured solely by the composite county; the Inland Empire is
composed of Riverside and San Bernardino Counties; the Central Coast is composed of Santa Barbara, Monterey, and San Luis
Obispo Counties; the Sacramento region includes the counties
of Sacramento, El Dorado, Placer, and Yolo; and San Joaquin is
composed of Fresno, Kern, Madera, Merced, San Joaquin, Stanislaus, and Tulare Counties.
27
See Technical Appendix C for unemployment statistics by
region.
28
See Technical Appendix C for a calculation of changes across
the income distribution based on official business cycle dates.
29
Wage rates are typically “sticky,” or slow to adjust, and
employers find it hard to lower wages and salaries even if they
23
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The Great Recession and Distribution of Income in California
21
References
Autor, David, Lawrence Katz, and Melissa Kearney. 2008.
“Trends in U.S. Wage Inequality: Revising the Revisionists.”
The Review of Economics and Statistics 90 (2): 300–323.
Bernanke, Ben. 2011. Testimony Before the Committee on
the Budget, U.S. House of Representatives, Washington, D.C.,
February 9.
Burkhauser, Richard, and Jeff Larrimore. 2011. “How Changes
in Employment, Earnings, and Public Transfers Make the
First Two Years of the Great Recession (2007–2009) Different
from Previous Recessions and Why It Matters for Longer Term
Trends.” US 2010 Project, Russell Sage Foundation and Brown
University.
Daly, Mary, and Heather Royer. 2000. “Cyclical and Demographic Influences on the Distribution of Income in California.”
FRBSF Economic Review.
Juhn, Chinhui, Kevin Murphy, and Brooks Pierce. 1993. “Wage
Inequality and the Rise in Returns to Skill.” Journal of Political
Economy 101 (3): 410–442.
Kolko, Jed. 2011. “The California Economy: Employment in
2010.” Just the Facts, Public Policy Institute of California.
National Bureau of Economic Research. 2010. Business Cycle
Dating Committee memo, September 20. Available at http://
www.nber.org/cycles/sept2010.html.
Piketty, Thomas, and Emmanuel Saez. 2003. “Income Inequality
in the United States, 1913–1998.” Quarterly Journal of Economics
118 (1): 1–41.
Reed, Deborah. 1999. California’s Rising Income Inequality:
Causes and Concerns. San Francisco: Public Policy Institute of
California.
Reed, Deborah. 2004. “Recent Trends in Income and Poverty.”
California Counts 5, No. 3, Public Policy Institute of California.
Reed, Deborah, Melissa Glenn Haber, and Laura Mameesh.
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22
The Great Recession and Distribution of Income in California
About the Authors
Sarah Bohn is a policy fellow at PPIC. Her research focus is at
the intersection of labor economics and public policy. She studies
inequality, immigrants, and workforce training. She has written
about the effects of immigration and immigration policy on the
labor market, underground labor, and economic demography.
She holds a Ph.D. in economics from the University of Maryland,
College Park.
Eric Schiff is an independent public policy researcher and economic consultant and a
former policy researcher at PPIC. He has studied various labor market topics as well as
immigration policy, health policy, and transportation policy issues. He holds a B.A. in
economics and an M.A. in demography, both from the University of California, Berkeley.
Acknowledgments
The authors thank Hans Johnson, Laura Hill, Deborah Reed, Caroline Danielson,
Lynette Ubois, Robert Gleeson, Kim Belshé, and Austin Nichols for helpful feedback on
a draft of this report. Any remaining errors are our own.
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